FPIs return to Indian equities with Rs 24,454 cr inflow in Dec first week

After heavy selling in the past two months, foreign investors have staged a strong comeback to Indian equities with a net investment of Rs 24,454 crore in the first week of December amid stabilising global conditions and expectations of potential US Federal Reserve rate cuts.

This revival follows significant outflows in the preceding months, with foreign portfolio investors (FPIs) pulling out a net Rs 21,612 crore in November and a massive Rs 94,017 crore in October - the worst monthly outflow on record.

Interestingly, September had marked a nine-month high for FPI inflows, with a net investment of Rs 57,724 crore, highlighting the volatility in foreign investment trends.

With the latest inflow, FPI investments have reached Rs 9,435 crore in 2024 so far, data with the depositories showed.

Looking ahead, the flow of foreign investments into Indian equity markets will hinge on several key factors. These include the policies implemented under Donald Trump's presidency, the prevailing inflation and interest rate environment, and the evolving geopolitical landscape, Himanshu Srivastava, Associate Director, Manager Research, Morningstar Investment Research India, said.

Additionally, the third-quarter earnings performance of Indian companies and the country's progress on the economic growth front will play a crucial role in shaping investor sentiment and influencing foreign inflows, he added.

According to the data with the depositories, FPIs have made a net investment of Rs 24,454 crore this month (till December 6).

Trivesh D, COO, Tradejini, a stock trading platform, attributed the latest inflow to improving global conditions and the possibility of US Fed rate cuts.

Also, the recent correction in the market could have prompted FPIs to build some exposure, Srivastava said.

Additionally, uncertainty over Chinese equities on the back of proposed tariffs by US President-elect Donald Trump on China and other several nations could have prompted FPIs to look back at Indian equities, which offer much clearer long-term growth prospects, despite relatively high valuations, he added.

VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said the shift in FPI strategy is evident in stock price movements, especially in large-cap banking stocks, where FPIs have been selling.

This segment still has upside potential as it remains fairly valued and continues to grow at a steady pace, with more domestic institutional and retail investments expected to flow in, he added.

Additionally, the IT sector is poised to perform well and attract increased FII interest.

On the other hand, FPIs pulled out Rs 142 crore in the debt general limit and invested Rs 355 crore in the debt Voluntary Retention Route (VRR) during the period under review.

So far this year, FPIs invested Rs 1.07 lakh crore in the debt market.